Stipends are a thoughtful way to support employees, volunteers, trainees, and other team members, and with the rise of virtual teams, they're becoming a more popular option for companies that want to set aside a budget for team lunches or virtual happy hours. But what are stipends? And why are they so valuable in shaping your company culture?

In this post, we’ve curated all the information you need to set up a stipend program. You’ll find out what stipends are, why they work, and how you can easily introduce them at your company. Here’s everything you need to know about stipends.

What is a stipend? ‍

A stipend is a fixed sum of money you give someone as a fringe benefit or to offset expenses. Usually, companies give stipends to team members, but they can also offer them to volunteers, trainees, students, and other people who support the organization. Stipends are outside a regular employee’s hourly wage or salary — it's an additional daily, weekly, or monthly amount of money that can create an attractive benefits package.

Think of a stipend as an allowance for a fixed amount. For example, you might give your employees a $150 monthly stipend to help them with the costs of working remotely. You could also have a weekly travel stipend to help employees get around the city using public transport or a service like Uber. Or, you could offer a health care stipend to cover the cost of employees' gym membership.

Stipends aren’t a new concept. In fact, they’ve been around in one form or another since the 15th century. The word stipend comes from the Latin stipendium. It’s a combination of the two words “stips” and “pendere,” defined as “small payment” and “to pay.” That meaning still works today with many companies using stipends to provide small perks to employees.

Are stipend payments taxable?

It depends. There are some grey areas in the Internal Revenue Service (IRS) definitions, so it's up to employers to define what they consider a taxable benefit vs. a non-taxable benefit. We always suggest consulting with your accounting team or tax experts for formal guidance.

Some stipends can count as taxable income, so federal taxes may need to be paid at the end of the year. This depends on fringe benefits state taxes and what the stipends are being used for.

Stipend payments aren’t typically counted as wages, so tax withholding doesn't apply. As such, Social Security and Medicare taxes aren't withheld. Still, it's a good idea for employees to keep track of the stipends they receive if they’re classified as taxable income.

If you use stipend management software, it’s often much easier to stay tax compliant when you submit your tax return. Otherwise, be sure to learn about IRS Publication 15-B to understand how income tax and other tax implications might apply.

Are stipends legal?‍

Stipends are legal when you follow the tax laws in your jurisdiction. While they’ve been used as a way to avoid compensating people properly in the past, stipends today are used as a perk alongside proper pay. Stipends should never be used as a way to exempt someone, either partially or fully, from a salaried position.

Different types of stipends

You can create a stipend for almost anything. Stipends typically exist to fund work-related benefits and perks for employees. This means they’re often used to help cover commuting costs, workspaces, wellness, and professional development.

The beauty of stipends is that you can tailor them to fit your company and your employees. Take dating app Hinge, for example. The company offered employees in its New York office a $200 monthly stipend to spend on dates. The app’s founder, Justin McLeod, said his favorite story of an employee using the benefit was a cat-themed date that one employee planned for their significant other.

While a dating allowance might not be a typical company perk, here are some more common reasons to offer stipends:

• Employee fringe benefits like commuting, lunches, and home office expenses
• Health insurance and wellness programs for employees and their families
• Professional development budgets that cover job training, courses, and learning
• Housing stipends to cover housing expenses, cost of living, or moving to a new location
• Fellowship stipends that cover academic research and living costs for medical professionals like physicians, dentists, nurses, or veterinarians
• Clergy stipends for religious leaders and leaders-in-training to cover the cost of their living expenses, including food, rent, and more
• Research stipends or scholarships for students and researchers to cover the cost of their rent throughout their academic program — this is common for students working on their doctorate
• Per diems to cover expenses related to business travel, including lodging and meals
• Cell phone stipends for sales staff or employees traveling on business
• Health insurance stipends for remote employees who are based in another country
• Educational stipends that cover qualified expenses for required classes

It’s common for companies to use stipends to create or reinforce their culture or support their brand story. For example, the CEO of Molson Coors Brewing Co. noticed its beers were not on tap at all the pubs in Denver — the company’s hometown.

The company’s marketing team started an internal campaign called Reclaim Colorado. As part of this, each employee was given a $35 monthly stipend to buy beer for others when they were out having drinks.

What makes stipends great?

Stipends give you an effortless and effective way to invest in your employees. These readily available funds are easy to personalize and can significantly boost employee engagement and satisfaction.

Research shows that satisfied employees are between 12-22% more productive than those who are unhappy with their jobs. This means that investing more in your team can be an excellent way to improve everyone’s productivity and happiness.

If your team is mostly remote, stipends offer a great way to keep your team happy. When they can’t make it into the office to enjoy the free snacks or play table tennis, stipends help close the culture gap. Team members can use their stipend to sign up for a dance class, set up fresh fruit delivery at home, or travel for a quarterly meeting — you set the rules.

There are also practical benefits to using stipends. With a stipend system in place, it’s easier to make decisions about requests for funds. This is particularly helpful if you use an employee benefits platform since you can handle everything in one place.

Let’s compare stipends to a more manual, individual approach to issuing funds for learning or development. With a stipend, you can quickly assign funds to an employee so they can choose a course, program, or opportunity that helps them reach their goal. Without a stipend, you’d have to manually consider, process, and transfer funds for each opportunity. Stipends speed up the process and make it easier to manage.

Along with simplifying your spending programs, stipends offer your employees a lot of flexibility and freedom. Instead of having to research a course and present a case for funding, they can simply use their learning stipend to pay for a course they believe in.

It’s a good idea to set general guidelines on what your stipends can be used for, but splitting the funds into basic categories is probably enough. This freedom means your employees can personalize their experience, and it cuts down on the administrative burden for your managers and HR team.

How much should a stipend be?

You determine the dollar amount of your stipends. Companies use a huge range of values, depending on their budget and the intended use of their stipends — from a $20 coffee allowance to a $5,000 yearly professional development stipend.

A fantastic way to set your stipend allowance is to think about the impact you’d like it to have. If you want your employees to feel supported and challenged to grow, you might set your learning stipend at $2,000 per year rather than $500.

You’ll also want to consider your employees and their own unique needs when you set the amount of the stipend. For example, if your team mostly works remotely, consider a monthly stipend that allows them to rent a coworking space or meet with others for lunch.

It’s also a good idea to look at the benefits of investing in your employees. For instance, if an employee with an annual salary of $60,000 can be more comfortable and 10% more productive ($60,000 x 10% = $6,000) with a $500 office chair, then it’s worth the investment. You can then use this as a basis to help you set stipend amounts for furniture, but also for other areas like wellness or productivity.

To help you find the right figure, take a look at the stipends that other leading companies offer their employees. You’ll find examples of high-budget learning stipends, affordable lunch allowances, and more creative stipends.

How stipends work

Stipends offer your employees funds that they can use for a specific purpose. Maybe it’s to support their well-being while working remotely or help them learn a new skill to support career development.

With a stipend, your employee doesn’t need to go through a complicated process to get funds approved. With some stipend programs, they simply request it, receive it, and spend it in a way that makes sense for them. While other programs allow team members to spend their own money up front, and get a reimbursement when they submit their receipts.

As stipends are funds you make available to employees, you can transfer them in similar ways. Some companies choose to do this through their payroll system on a monthly basis. This works well if you offer a monthly stipend to all employees, like a lunch allowance or gym membership. Other companies use a funds transfer to send stipends to their employees after the employees spending is approved.

The easiest way to set up and run your stipends is with a stipend management tool. From here, you can set up programs, assign stipends to employees, and let them use these funds to further their learning, support their well-being, or make progress on their goals. You can also track spending to see how your stipends are being used to help you improve your program even further.

Who receives a stipend?‍

In the past, stipends were associated with people who couldn’t access a regular salary, or there was no minimum wage requirement through their work. Common recipients included clergy, researchers, interns, graduate students, graduate assistants, and apprentices. With no traditional wage, stipends offered financial support for people in these roles to fund their living costs and studies.

Although these roles often still attract stipends, they’re no longer strictly associated with unpaid work. These days, stipends are better known as an attractive employee perk in addition to regular pay.

In most cases, all team members have access to the same level of stipends, which means there’s no hierarchy, fewer disgruntled employees, and more opportunities to create a better workplace for everyone.

Of course, there will be situations when a stipend isn’t relevant for every employee. Not everyone will need a relocation stipend or a stipend for remote work. In cases like these, think about how you can offer a similar value to all your employees, but in a personalized way.

Introduce stipends the easy way

Stipends don’t have to be complicated, but many company stipend programs are. If you have to individually track, approve, and provide reimbursements for each team member who uses their stipend, you'll need a full-time team member just to manage the program.

Avoid the complicated logistics by managing your stipend program with Hoppier virtual credit cards. With Hoppier cards, you can set up a stipend program and issue credit cards to each of your team members with only their email addresses.

You can set a budget and choose acceptable vendors. If your stipend is for a wellness program, limit vendors to gyms and health subscriptions. If you want to offer remote employees a home office budget, limit it to furniture and office supply stores.

You have the power to set your digital credit cards up to cover whatever spending makes sense for your company. Plus, you can brand the card with your company colors and logo — a fun way to reinforce your culture.

Set your stipend program up for success

With a company stipend program, you can offer employee perks that match your company culture. For dating app Hinge, that meant offering a stipend for employees to go on dates. For beverage company Molson Coors, it meant allowing their employees to pick up the tab for the next round of beers.

For your company, your stipend program should be unique to your culture. Maybe your remote employees could use a coffee budget to go work out of their favorite coffee shop once a week, or maybe your development company wants to offer perks of employee development.

However you want to show your appreciation for your employees, Hoppier is here to help. Explore more ideas for fun employee rewards.